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EchoStar Woes Start in World of ARPU

Figures for average revenue per user continue to lag behind those at rival DirecTV, leading to a selloff.


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reported strong subscriber growth in the first quarter, following in the footsteps of satellite rival




But with EchoStar reporting significantly lower average revenue per subscriber than DirecTV, investors appeared to be wondering whether EchoStar's cost of acquiring new subscribers was worth it.

Shares in EchoStar, the Colorado-based operator of the Dish Network home satellite TV service, fell 6% by Thursday afternoon.

For the first quarter ended March 31, EchoStar reported a net loss of $43 million, or 9 cents a share, compared with a profit of $58 million, or 12 cents a share, in the year-earlier period.

The loss for the quarter includes a $78 million charge associated with the early redemption of debt. Simply adding that number back to the loss would result in a profit of roughly $35 million.

Excluding items, analysts had been expecting net income of $77.7 million, or 15 cents a share.

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Revenue for the quarter rose 16% to $1.58 billion, ahead of the $1.55 million First Call forecast.

Dish added approximately 360,000 net new subscribers during the first quarter, giving it a total of about 9.8 million subscribers as of March 31. As with DirecTV, which

reported quarterly numbers on Tuesday, that number was ahead of consensus expectations, which Schwab Soundview put at 310,000 additions.

"The industry appears to have momentum," EchoStar CEO Charlie Ergen told analysts on a conference call Thursday.

Whether the growth was worth it, however, was up for debate. The average cost of acquiring new customers amounted to $604 per gross subscriber, up $49 from the immediately prior quarter, excluding one-time items. Subscriber acquisition costs were up year over year as well.

Average monthly revenue per subscriber, however, didn't grow significantly from year-ago figures, and churn -- the percentage of customers who give up the service each month -- increased from the first quarter of 2003.

Among the factors affecting churn, said Ergen, were cable marketing campaigns targeting Dish specifically, a shortage of equipment -- such as digital video recorders -- for customers who wanted to upgrade, and the transition of customers from one-year contracts to subscriptions with no annual commitment.

Ergen also argued that higher churn, the bane of satellite and cable operators, isn't necessarily a bad thing, because churn statistics don't reflect the relative profitability of the customers who depart the service and the ones who remain. "Not all customers are created equal," he said.

When questioned about EchoStar's average monthly revenue per subscriber -- ARPU, as it's abbreviated, was $51.76, compared with DirecTV's $63.60 -- Ergen suggested that the comparison wasn't apples-to-apples, because DirecTV, he said, had National Football League programming costs of $400 million to $500 million annually. The NFL package, he said, might increase ARPU for DirecTV, but not necessarily profit.

Yet, said Ergen, "I'm disappointed where our ARPU is today."

EchoStar's shares fell $2.12 to trade at $32.17.